The average target price of MSIF is 17 and suggests 6% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 20.0. This translates into 22% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 15.5. This is equivalent to 6% downside potential in the worst case. 

MSC Income Fund, Inc. is a Business Development Company specializing in middle market debt and debt and equity investments in lower middle market companies. The fund seeks to invest in management buyouts, recapitalizations, growth financings, refinancing and acquisitions of companies. It invests in companies with revenue between $10 million and $150 million.

MSC Income Fund, Inc.

Financial Services

The company pays dividends irregularly. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. The company distributes most of its profit as dividends (payout ratio above 75%, a negative factor). It will not be easy to sustain such a high payout ratio. It may also indicate a company’s lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends annually. 

MSIF reported revenue of USD 63mn in the last 12 months, down 16% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 15% from FY23 to USD 1.41. Market expects EPS to reach USD 1.50 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. The stock has lagged its global peers from the same sector and industry (as shown above), underperforming then by 3ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported very poor EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 0.0% in the last 12 months, a decline from 0.0% in FY22. 

Historically, MSIF has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 90.2%, a growth from 88.5% in FY23. 

MSC Income Fund, Inc. reported a return on equity (RoE) of 9.0% in the last 12 months, down from 10.7% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 4.6% in the last 12 months, a decrease from 5.7% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 4.6%, below the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.3 in the past several years. This ratio implies a average shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

MSIF has poor trading liquidity. The average private investor can sell his common position in the stock in a single trading day. Liquidity is usually stable and is unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, bleak profitability, poor working capital management, and inadequate interest coverage. We note low margin volatility and an favourable capital structure, among the positive credit factors. 

In highly turbulent market conditions, MSIF is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, MSIF is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal. 

Based on key historical and expected multiples, the stock is overvalued relative to its peers. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITD. 

MSC Income Fund, Inc.

$ 16.26

4

MSC Income Fund, Inc.

$ 16.26

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 16.26

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